Texas Divorce Attorney Blog
A pre-marital agreement can be a valuable way to protect assets in a high net worth Texas divorce. A pre-marital agreement can help protect a spouse’s interest in a business, identify property that will remain separate, or describe how a complex estate will be divided in the event of a divorce. In some cases, however, a party may challenge the validity of the pre-marital agreement. The Texas Family Code sets forth the circumstances under which a pre-marital agreement will not be enforced, but matters may become more complicated if the agreement was signed in another state. A wife recently challenged an order applying Louisiana law to the validity and enforceability of a pre-marital agreement.
The Pre-marital Agreement
The parties got married in Louisiana in 1990. They purportedly signed a pre-marital agreement pursuant to Louisiana law a few days before the marriage. The agreement provided that only the husband’s salary from a particular company would be community property. All other income generated by his efforts would remain his separate property. All revenue generated by the wife’s efforts would be her separate property.
Applicable Law
The wife petitioned for divorce in Texas in 2019. The husband asked the trial court to enforce the agreement. The wife asserted a number of defenses to enforcement of the agreement under Texas law.
The husband moved for the application of Louisiana law to the validity and enforcement of the agreement. He argued it included legal terms and doctrines that were “peculiar” to Louisiana, had been prepared by a Louisiana attorney, had been signed in Louisiana, and the property subject to the agreement was in Louisiana when it was signed and several large assets were still in Louisiana. He acknowledged there was not a choice of law provision in the agreement, but argued Louisiana had the most significant relationship to the agreement.
The wife argued that Texas law applied without a choice of law provision in the agreement and that the husband had not shown a conflict between Louisiana and Texas law so there was no need to apply the significant relationship test.
The trial court applied the significant relationship test according to Restatement (Second) of Conflict of Law (“Restatement”) and found Louisiana had the most significant relationship to the agreement and that Louisiana law applied to validity, enforcement, and construction of the agreement.
The trial court granted a joint motion to bifurcate the issue of the validity and enforceability of the agreement from the determination of the divorce and property matters. The jury was presented only with the question of whether the wife proved by clear and convincing evidence she had not signed the agreement. The jury responded “no” and the court entered an order accepting and adopting the verdict and ordering that the agreement was valid and enforceable.
The court entered an agreed order of referral to arbitration. Following the arbitration proceedings, the court ultimately entered a Final Decree of Divorce Nunc Pro Tunc, confirming all of the previous arbitration awards.
The wife appealed, arguing the court should have applied Texas law.
The trial court found the agreement did not have an express choice of law provision. It also found that Texas did not have an explicit choice of law directive regarding validity enforceability, and construction of the pre-marital agreement.
Choice of Law Directive
The wife argued, however, that Texas Fam. Code § 1.103 contains a clear choice of law directive. The husband argued this statute only applied to the validity of the marriage itself and not to a pre-marital contract executed in another state. The appeals court concluded that, if the statute is a choice of law directive, it applies only to determine which state governs rights and duties arising from the marriage or divorce. It does not specifically state whether Texas law applies to the validity of a pre-marital agreement executed somewhere else. The appeals court also noted the Texas Family Code permits parties to designate which state’s laws will govern a pre-marital agreement’s construction, but it does not state that Texas law applies to an agreement executed outside the state if it does not contain a choice of law provision. The appeals court rejected the wife’s argument that § 1.103 was a choice of law directive as to the validity and enforceability of a pre-marital agreement.
Significant Relationships
The wife argued in the alternative that the court erred in holding Louisiana had the most significant relationship to the parties and the agreement.
A choice of law analysis is only triggered if there is a conflict between the laws that would affect the outcome of an issue. The husband argued there was conflict in the laws regarding the validity and enforceability of pre-marital agreements.
A pre-marital agreement is not enforceable under Texas law if the party shows: they did not voluntarily sign the agreement; the agreement was unconscionable when signed and the party was not provided a fair and reasonable disclosure of the other party’s financial obligations or property, did not voluntarily and expressly waive such disclosure in writing, and did not have or reasonably could not have had adequate knowledge of the other party’s financial obligations or property. TEX. FAM. CODE § 4.006.
Louisiana does not have a specific statute providing when a pre-marital agreement is unenforceable, but instead applies the same rules as apply to other contracts. The appeals court considered the elements of a valid contract under Louisiana law and concluded that, although there were similarities in how Texas and Louisiana governed the validity and enforcement of pre-marital agreements, the differences could affect the outcome. The appeals court therefore determined there was a conflict of law.
Because there was a conflict of law, the appeals court used the most significant relationship test in § 6(2) of the Restatement and any sections relevant to the substantive law to determine which law should be applied. Section 188 provides that the rights and duties of the parties to a contract are determined by the law of the state with the most significant relationship to the parties and the transaction under section 6. Additionally, if there is no choice of law provision, the court should consider: where contracting, negotiation, and performance occurred, where the subject matter of the contract is located, and the parties’ domicile, residence, nationality, place of incorporation, and place of business. The court is to evaluate these contacts according to their relative importance.
The trial court did not issue and the parties did not request findings of fact. There were notes in the docket sheet referencing a “choice of law hearing,” but there was no transcript of the hearing in the record before the appeals court. Because the wife as appellant had the burden of proof that the court erred, the appeals court presumed that the omitted portions of the record supported the trial court’s determination.
Jury Questions
The appeals court also rejected the wife’s argument the trial court erred in not including fraud and duress in the jury charge, finding no evidence in the record supporting those claims. The appeals court also rejected her argument the court erred in not including questions and instructions related to her capacity. The failure to submit a jury question is only grounds for reversal if it was submitted with “substantially correct wording.” Tex. R. Civ. P. 278. The appeals court noted that “capacity” is a legal term and the wife had not submitted a definition or any accompanying instructions. The appeals court determined that the proposed jury question did not provide guidance to allow the jury to reach a proper verdict. The court also determined that the question was too vague because it failed to indicate that a person does not have capacity if, at the time of contracting, they are deprived of reasoning. The appeals court concluded the proposed question was not in substantially correct wording, so not submitting it to the jury was not reversible error.
Seek Legal Guidance
Because pre-marital agreements protect assets in complex estates, there is often an incentive for a spouse to argue against enforcement. Texas law generally presumes pre-marital agreements are enforceable, but there are circumstances under which they will not be enforced. If you are entering a marriage with significant assets, McClure Law Group can work with you to determine if a pre-marital agreement is appropriate for you. If you are considering ending your marriage and want to enforce a pre-marital agreement, call us at 214.692.8200 to set up a consultation with one of our experienced Dallas divorce attorneys.